ALEX BRUMMER: Rishi's looking at £26bn worth of bounced cheques

Small and micro businesses are the backbone of the British economy. 

So it comes as no surprise that, when commerce was shut down at the peak of Covid-19 in April, the Chancellor, Rishi Sunak, felt he had to come to the rescue.

The bounce back loan scheme was born with an unprecedented 100 per cent indemnity from the Government.

So far £38billion and rising has been lent. It was imperative that the loans of up to £50,000 were dished out in record time before firms collapsed.

The gatekeeper for the loans (made by High Street banks) was the British Business Bank, which had no experience of running a scheme on this scale.

Credit checking was poor, verification virtually non-existent and as a result the plan looks as if it will be among the biggest destructions of taxpayer money since the financial crisis.

Critics of the bank bailouts in 2007-08 accused the Government of socialising the costs by imposing it on citizens through austerity. This time around the banks have done their duty by providing 1.2m loans.

But many went to firms which have never borrowed before and tens of thousands to enterprises which barely exist. In contrast the self-employed were required to produce tax returns to qualify for furlough-like payments. 

Micro-businesses were simply handed the money. It was in effect what Milton Friedman described as ‘helicopter money’ for small enterprises.

If the National Audit Office is right, then up to 60 per cent of these loans will end in default and the cost to the Exchequer, at up to £26billion, will be ludicrously high. 

That’s before we consider the administrative burden of chasing repayments from cheats who have vanished into the ether.

Should bounce back have been done differently? Almost certainly. But in the midst of an economic catastrophe it looked correct. 

This whole episode is a warning of the dangers of being seduced by well-intentioned but badly-thought-out credit plans. Authors of Boris Johnson’s 95 per cent mortgage loans have been warned.

Under water

Premier Oil investors will feel sore when a reverse takeover by private equity-backed North Sea rival Chrysaor is completed, leaving them just 5 per cent of the enlarged equity.

The exciting narrative of being part of the biggest independent £5.4billion oil and gas firm on the London Stock Exchange, headed by Linda Cook, will be hard to applaud.

Under Cook, a refugee from Royal Dutch Shell, Chrysaor has become the default owner of depleting North Sea oil resources. 

It is the equivalent of insurance outfits such as Phoenix picking up assets with an annuity stream of income in the knowledge that the best way of making good returns is by squeezing costs.

Premier would almost certainly argue it had few choices but to accept the toughly negotiated Chrysaor deal. 

Ahead of the takeover Premier had a market value of just £140million, propping up a debt pile of £2.1billion.

Cook has grown Chrysaor with finance provided by Houston-based Harbour Energy. 

In a relatively short period of time it has bought UK oil assets abandoned by Shell and Conoco Phillips as the North Sea has become sub-scale for the majors. 

Together with the Premier drillings, the enlarged company will be able to pump 250,000 barrels a day.

The buyer will also gain access to Premier’s assets in Asia and Latin America. At a time when big oil is retreating from fossil fuels there will doubtless be other opportunities to bulk up. 

North Sea oil is notoriously expensive to extract. The plunge in the market price from $70, when Chrysoar made its last round of acquisitions, to $40 a barrel shows the risk involved.

Should global demand start to recover in 2021 and beyond, as Covid retreats, there could be a decent upside.

Swiss watch

What happens in Zurich generally stays in Zurich, a city renowned for its banking secrecy. 

So imagine the consternation at Credit Suisse after The New York Times disclosed the overtly racist entertainment at the 60th birthday party last November for the bank’s chairman, Urs Rohner, who is also a director of Glaxosmithkline.

The bank’s Ivorian chief executive, Tidjane Thiam, left the room accompanied by his partner along with another guest, Glaxo chief executive Emma Walmsley.

Forget about the excuses – Rohner should be expelled from the Glaxo board without delay.